Bellevue Healthcare Strategy (Lux)

Broad swaths of the global stock market and the healthcare sector as a whole showed a positive performance in October. The MSCI World Healthcare index closed the month up 2.3% (in CHF). But October was not a good month for the Healthcare Strategy Fund (Lux), as the fund is now called. It closed the period under review with a loss of 1.4% (I shares).

Initial reports on the course of business and financial results for the third quarter were published during the month of October. Several companies in the fund's portfolio released Q3 results and they were generally quite pleasing, particularly the results from Anthem, HCA Holdings and Abbvie, all US companies. But that was not enough to offset the countervailing market forces the fund faced in October: Big Pharma, a segment underweighted by the fund, performed very well last month while Asian markets, which are overweighted in the portfolio, lagged well behind the US and European stock markets. On the bright side, the Bellevue Healthcare Strategy (CH) Fund celebrated its five-year anniversary at the end of October. It has delivered a pleasing return of 103.4% since its launch in 2016, which represents an excess return of 16.2% over the benchmark performance – with a low daily volatility of 16.1%. The semi-annual rebalancing of the fund's portfolio took place in October. Eleven of the 40 stocks in the portfolio were replaced, which is at the low end of the historical range. The rebalanced portfolio maintains a strong element of diversification across different countries and sub-sectors, and this will continue to set it apart from its benchmark index, the MSCI World Healthcare Index.

The investment process for the Bellevue Healthcare Strategy Fund resembles the rules-based investment process that Bellevue has successfully applied since 2007. In this approach, the 40 most attractive stocks in the healthcare sector worldwide are selected every six months. The Bellevue Healthcare Team screens about 600 of the 4000 listed companies in the healthcare sector worldwide based on four quantitative criteria (PEG valuation, price/sales, sales growth and EBITDA/sales) and four qualitative criteria (assessing the company's management, product pipeline, operating risks and country-related risks). The ten most promising stocks from four different regions – Western Europe, North America, Japan/Australia and emerging markets – are selected. The maximum weighting of the region with the highest overall score, which is usually North America, is capped at 35% during the periodic rebalancing, which increases the emphasis given to emerging markets. Companies with rich valuations and low growth rates will rarely be selected for the portfolio. Mid cap stocks have typically represented 60-80% and the Asia region approximately one-third of the portfolio. Pharmaceutical stocks are clearly underweighted compared to the MSCI World Healthcare Index. Bellevue has applied this investment approach since April of 2007 and it is used to compile the Adamant Global Healthcare Index.